Following the introduction of VAT in UAE on January 1, 2018, businesses are now required to meet numerous requirements outlined in the VAT law. Businesses that are registered for VAT are required to file VAT returns with the Federal Tax Authority (FTA). The following are the most common mistakes businesses make when filing VAT returns in UAE. Taxpayers should be extra cautious when VAT return filing in Dubai since some common errors occur during this process.
Inadequate planning for VAT compliance
UAE has recently enacted a new VAT law. The various implications of VAT and how they relate to compliance are difficult for businesses to comprehend. They must formulate a plan to address VAT laws in light of the complexities of transactions related to VAT. An accounting department must provide the necessary accounting skills for this plan to be successful. VAT compliance must be managed by their team. As a result, sometimes the company hires the wrong set of people who, like the company, are not familiar with the complexities associated with VAT.
In order to resolve this issue, they must hire a skilled, competent, and professional team of accountants and tax experts who understand the VAT requirements and are proficient enough to handle the VAT return filing in Dubai, process. The VAT compliance process may result in high penalties even for a small error. Consequently, businesses need a well-designed, strong accounting system to handle VAT aspects.
Lack of record-keeping
The accounting records of any purchase or sale transaction should be maintained by any company in any country. As a VAT taxpayer in the UAE, you must keep records of all your transactions including payments, receipts, expenditures, invoices, sales records, inventory records, import and export records, revenue records, credit and debit notes, general ledgers, VAT ledgers, salary and benefits accounts, and many more. Most companies fail to keep track of all these accounts, or even if they do, they fail to keep them updated on a regular basis.
Businesses in the UAE are required to keep all records and accounting information for at least five years, except in the real estate industry, where it is fifteen years. The FTA requires businesses to hire a dedicated accounting team or outsource the record-keeping exercise to a VAT consultant so they can comply with the requirement.
VAT calculation errors
It is crucial to apply the correct VAT rates when filing accurate VAT returns filing in Dubai, The problem is that businesses make mistakes when identifying the appropriate rate of VAT for the goods and services, which leads to larger errors in calculations and payments with penalties.
Missing or late filing of VAT returns
The UAE has deadlines for VAT return filing in Dubai, In terms of filing VAT returns, the FTA has defined quarterly and monthly deadlines. In order to avoid any last-minute rush that may lead to errors or omissions in calculations, businesses must be up to date with these deadlines and complete their returns filing process before the deadline. In addition, they must remind themselves to file their VAT returns on time.
Errors in reverse charge transactions
It is common for businesses to make errors when applying the reverse charge mechanism. The reason is that goods and services are imported. It is common for businesses to forget to report transactions covered by the reverse charge mechanism in the VAT return filing service in Dubai. These transactions are also not subject to VAT. Due to the existing customs procedure, these transactions are nevertheless reflected in a business’s VAT returns. Therefore, businesses must take extra care when reporting such transactions and seek professional assistance.
Error in using adjustment columns
In the process of VAT return filing in Dubai, businesses fail to understand how adjustment columns are actually used. As its name implies, adjustment columns are intended to reflect bad debts and changes due to commercial property sales. The adjustment columns, however, are usually used by businesses to correct errors made in previous VAT returns. There may be further questions, investigations, and penalties from the FTA as a result of the change in numbers. Therefore, businesses must be careful to understand the purpose of each column of information that is required to be filled in the VAT return form.
Business owners commonly make these mistakes when VAT return filing in Dubai, There may be other errors as well. For example, delays in registration leading to late filing, failure to issue a valid tax invoice, use of incorrect accounting software, incorrectly claiming input tax for blocked categories or linked to exempt supplies, adjustments to the value of goods/VAT rates based on auto-populated details of imports, lack of satisfactory evidence to support zero-rated supplies, including exports, end-of-year adjustments to the recoverable tax, etc. The FTA imposes penalties for these mistakes, which are expensive for businesses. In order to avoid making these mistakes, you must follow best practices and VAT return filing in Dubai, in a timely and accurate manner.